Trump Versus the Hog-Maker

Posted June 28, 2018 8:29 p.m. EDT

By PAUL KRUGMAN, New York Times

Harley-Davidson, the famed manufacturer of “hogs” — big motorcycles — made headlines this week when it announced that it would be moving some of its production out of the U.S. in the face of the growing tariff war between America and the European Union.

And Donald Trump made more headlines when he lashed out at a company “I’ve been very good to,” accusing it of having “surrendered” to Europe. So he threatened it with punishment: “They will be taxed like never before.”

Now, in general I’m suspicious of news analyses, especially but not only in economics, that rely a lot on a supposedly revealing anecdote (such as, for example, analyses based on conversations with Trump supporters in diners). And the truth is that while Harley-Davidson may be something of an icon, it isn’t a big player in the U.S. economy. At the end of last year its motorcycle segment employed around 5,000 people; that’s not much in an economy where around 250,000 people are hired every working day.

Nonetheless, I think the Harley story is one of those anecdotes that tells us a lot. It’s an early example of the incentives created by the looming Trumpian trade war, which will hurt many more U.S. companies and workers than Trump or the people around him seem to realize. It’s an indication of the hysterical reactions we can expect from the Trump crew as the downsides of their policies start to become apparent — hysteria that other countries will surely see as evidence of Trump’s fundamental weakness.

And what Trump’s alleged experts have to say about the controversy offers fresh confirmation that nobody in the administration has the slightest idea what he or she is doing.

About that trade war: So far, we’re seeing only initial skirmishes in something that may well become much bigger. Nonetheless, what’s already happened isn’t trivial. The U.S. has imposed significant tariffs on steel and aluminum, causing their domestic prices to shoot up; our trading partners, especially the European Union, have announced plans to retaliate with tariffs on selected U.S. products.

And Harley is one of the companies feeling an immediate squeeze: It’s paying more for its raw materials even as it faces the prospect of tariffs on the cycles it exports. Given that squeeze, it’s perfectly natural for the company to move some of its production overseas, to locations where steel is still cheap and sales to Europe won’t face tariffs.

So Harley’s move is exactly what you’d expect to see given Trump policies and the foreign response.

But while it’s what you’d expect to see, and what I’d expect to see, it’s apparently not what Trump expected to see. His view seems to be that since he schmoozed with the company’s executives and gave its stockholders a big tax cut, Harley owes him personal fealty and shouldn’t respond to the incentives his policies have created. And he also appears to believe that he has the right to deal out personal punishment to companies that displease him. Rule of law? What’s that?

Now, I suppose it’s possible that Trump will, in fact, manage to bully Harley-Davidson into backing down on moving some production from the U.S. At the moment, however, there’s no sign of that.

And anyway, we’re talking about a few hundred jobs here out of around 10 million currently supported by exports but put at risk by Trump policies. So if we’re talking about a serious trade war, we’re talking about thousands of Harley-Davidson-scale job losses. Even Trump can’t rage-tweet enough to make a significant dent in troubles of that dimension.

So what do Trump’s economists have to say about all of this? One answer is, what economists? There are hardly any left in the administration. But for what it’s worth, Kevin Hassett, the chairman of the Council of Economic Advisers, isn’t echoing Trump’s nonsense: He’s uttering completely different nonsense. Instead of condemning Harley’s move, he declares that it’s irrelevant given the “massive amount of activity coming home” thanks to the corporate tax cut.

That would be nice if it were true. But we aren’t actually seeing lots of “activity coming home”; we’re seeing accounting maneuvers that transfer corporate equity from overseas subsidiaries back to the home corporation but in general produce “no real economic activity.”

So the Harley incident reveals the pervasive cluelessness behind the administration’s signature economic policy. But it also reveals something else: the deep weakness at Trump’s core.

Think about it. Imagine that you’re Xi Jinping, the Chinese president, who has already been telling leaders of multinational corporations that he plans to “punch back” against Trump’s tariffs. How do you feel seeing Trump squealing over a few hundred jobs possibly lost in the face of European retaliation? Surely the spectacle inclines you to take a hard line: If such a small pinprick upsets Trump so much, the odds are pretty good that he’ll blink in the face of real confrontation.

So the Harley story, while quantitatively small, may tell us a lot about the shape of things to come. And none of what it tells us is good.

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